The US labor market added 943,000 jobs in July, a noticeable pickup from an average of 563,000 jobs over the previous six months. The official unemployment rate fell to 5.4 percent from 5.9 percent in June, and the realistic rate—which adjusts the official rate to account for misclassification and the unusually large drop in labor force participation—also declined by 0.5 percentage point.
The recovery still has a way to go before the labor market returns to its pre-pandemic strength. Both measures of unemployment remain elevated, and the economy is eight million jobs short of pre-pandemic projections. An estimated 2.1 million fewer people are in the labor force than would be expected based on the unemployment rate.
But there are signs that a faster pace of recovery can be sustained. In recent months, job growth has been restrained because fewer workers are transitioning from unemployment into jobs than expected given the number of job openings. In the first six months of 2021, only about 23 percent of unemployed workers moved into jobs each month, well below the 29 to 34 percent expected under the labor market conditions, potentially equating to 500,000 fewer jobs per month being filled. A number of factors may have been preventing workers transitioning, including continued fears of the virus and enhanced unemployment benefits, but with openings at record levels, there are plenty of opportunities for more unemployed workers to move into jobs in the coming months.
This PIIE Chart is based on research in Jason Furman and Wilson Powell III’s blog post Strong growth in US jobs, but labor market remains well short of normal.